Question

Malco Enterprises issued $14,000 of common stock when the company was started. In addition, Malco borrowed $44,000 from a local bank on July 1, 2018. The note had a 6 percent annual interest rate and a one-year term to maturity. Malco Enterprises recognized $76,500 of revenue on account in 2018 and $90,000 of revenue on account in 2019. Cash collections of accounts receivable were $62,900 in 2018 and $73,100 in 2019. Malco paid $43,000 of other operating expenses in 2018 and $49,000 of other operating expenses in 2019. Malco repaid the loan and interest at the maturity date. Required a. Organize the information in accounts under an accounting equation. b. What amount of net cash flow from operating activities would be reported on the 2018 cash flow statement? c. What amount of interest expense would be reported on the 2018 income statement? d. What amount of total liabilities would be reported on the December 31, 2018, balance sheet? e. What amount of retained earnings would be reported on the December 31, 2018, balance sheet? f. What amount of cash flow from financing activities would be reported on the 2018 statement of cash flows? g. What amount of interest expense would be reported on the 2019 income statement? h. What amount of cash flows from operating activities would be reported on the 2019 cash flow statement? i. What amount of assets would be reported on the December 31, 2019, balance sheet?

Answer 1

Answers

• All working forms part of the answer
• Requirement ‘b’ to ‘i’ are based on Requirement ‘a’
• Requirement ‘a’

	Assets		Liabilities		Stockholder's Equity		Retained earnings			Cash Flow Statement
	Cash	Accounts receivables	Loan	Interest Payable	Common Stock	Retained earnings	Revenues	Expenses	Net Income	Amount	Section
For 2018:
Issue of Common Stock	$14,000				$14,000	$0			$0	$14,000	Finance Activity
Borrowing from Bank	$44,000		$44,000			$0			$0	$44,000	Finance Activity
Revenu recognised		$76,500				$76,500	$76,500		$76,500	$0
Collection from receivables	$62,900	($62,900)				$0			$0	$62,900	Operating Activities
Operating Expenses paid	($43,000)					($43,000)		$43,000	($43,000)	($43,000)	Operating Activities
6 months interest accrued				$1,320		($1,320)		$1,320	($1,320)
Balances at the end of 2018	$77,900	$13,600	$44,000	$1,320	$14,000	$32,180	$76,500	$44,320	$32,180
For 2019:
Revenue recognised		$90,000				$90,000	$90,000		$90,000
Collection from receivables	$73,100	($73,100)				$0			$0	$73,100	Operating Activities
Operating Expenses paid	($49,000)					($49,000)		$49,000	($49,000)	($49,000)	Operating Activities
Loan Interest paid [44000 x 6%]	($2,640)			($1,320)		($1,320)		$1,320	($1,320)	($2,640)	Operating Activities
Loan Principal amount paid	($44,000)		($44,000)			$0			$0	($44,000)	Finance Activity
Balances at the end of 2019	$55,360	$30,500	$0	$0	$14,000	$71,860	$166,500	$94,640	$71,860

• Other Requirements

Requirements		Answers
b	Net Cash Flows from Operating activities 2018	$19,900
c	Interest expense for 2018 Income Statement	$1,320
d	Liabilities on 31 Dec 2018 Balance Sheet	$45,320
e	Retained earnings on 31 Dec 2018 Balance Sheet	$32,180
f	Net Cash Flows from Financing activities 2018	$58,000
g	Interest expense for 2019 Income Statement	$1,320
h	Net Cash Flows from Operating activities 2019	$21,460
i	Assets on 31 Dec 2019 Balance Sheet	$85,860